Global Economics

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Global Summary Report
Released October 2023 (data through September 2023)

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 Global Economics Intelligence › Executive Summary (1/2), October 2023

Despite a generally unchanged global outlook, uncertainty persists due to the

ongoing elevated inflation and high interest rates that are eroding consumers'
purchasing power.
The global outlook remains unchanged, despite points in August, compared with the previous month
weaker readings in trade, consumer confidence, (128.0 points revised). European throughput fell,
and business activity. Still-elevated inflation and while Chinese ports continued to strengthen.
IMF’s Real GDP growth forecast higher interest rates are acting as headwinds to Overall consumer confidence declined, primarily due
economic growth. to elevated interest rates. Notably, households in
Percent October-23 June-23 According to the IMF’s October World Economic Brazil are the exception, as they remain more inclined
Outlook, global growth is forecast to slow from 3.5% to spend than save. On this point, consumer
2023 2024 in 2022 to 3.0% in 2023 and 2.9% in 2024. This is confidence in Brazil increased to 97.0, the highest
similar to April’s report, which forecasted global reading since February 2014. By contrast, confidence
growth of 2.8% in 2023 and 3.0% in 2024. deteriorated in the eurozone, dropping 17.8 after
3.0 2.9 Furthermore, the October report states that although recovering from last year’s historic low. The United
World
3.0 3.0 the likelihood of a hard landing has decreased over Kingdom also saw steep decline. Here, the cost-of-
the past six months, China’s property-sector crisis living crisis, a slowing jobs market, and the
United 2.1 1.1 could deepen. Near-term inflation expectations have uncertainties posed by the conflict in the Middle East
States 1.8 1.1 increased and, in turn, could contribute to the are contributing to a growing unease in consumer
persistence of core inflation pressures. Furthermore, sentiment. The view is a bit more nuanced in India.
Eurozone 0.7 1.2 more than half of low-income developing countries The sales growth for September was 9% year-over-
0.9 1.4 are in or at high risk of debt distress. The Conference year, which suggests that consumer sentiment
Board shows that US real GDP increased by 4.9% in remains optimistic, despite economic uncertainties.
United 0.5 1.0 Q3. In the eurozone, Q3 economic growth was The manufacturing sector has been in contraction for
Kingdom 0.4 1.0 weaker than expected, with GDP falling by 0.1% 13 consecutive months. In the eurozone, PMI
quarter-over-quarter (for a 0.1% year-over-year rise). numbers for manufacturing remain in contraction
China 5.0 4.5 In the emerging economies, China's GDP growth in primarily because of declining demand. Meanwhile,
5.2 4.5 Q3 slowed to 4.9% year-over-year (compared with Brazil’s PMI for manufacturing decreased from 50.1 in
6.3% in Q2), reflecting the fading influence of the August to 49.0 in September. Despite the decrease,
India 6.3 6.3 base effect. During this time, GDP expanded by the manufacturing PMI is higher than the year’s
6.1 6.3 5.2%. average of 47.6. Brazilian manufacturers experienced
There are mixed signals from global trade. Exports a setback in September as production levels and new
Brazil 2.2 1.3 rose for Russia and the United States but fell for order intakes returned to contraction, following slight
1.5 1.3 Brazil, China, and the eurozone; imports increased growth in the previous month. In line with overall
for Brazil, Russia, and the United States, but fell for trends, the PMI for manufacturing in India has been in
Russia 3.1 1.5 China. In China, cross -border trade continued to contraction for 13 months in a row, standing at 57.5 in
2.1 1.5 decline in Q3, with a year-over-year drop of –10.2% September (down from 58.6 in August). In terms of
(–6.0% in Q2), exports dropped by –10.8% in Q3 outliers, the PMI for manufacturing in the United
(compared with a –5.4% decline in Q2). Imports States increased to 50 (47.9 in August). And the
decreased by –9.4% (–7.0% in Q2). In addition, the picture in the United Kingdom has improved
Container Throughput Index increased to 129.6 somewhat, with the seasonally adjusted
Source: IMF – World Economic Outlook, October 2023 McKinsey & Company 3
 Global Economics Intelligence › Executive Summary (2/2), October 2023
Brazil remains the only country to continue interest rate cuts, while central banks in
other countries are tightening monetary policy further
Manufacturing PMI index posting 44.3 in September, up
slightly from August's 39-month low of 43.0.
Similarly, momentum in services is w eakening, w ith
Central bank interest rates most countries experiencing either stagnation or
contraction (only India and Russia are exceptions). In
Percent the United States, the services PMI decreased to 50.1
(50.5 in August). In the United Kingdom, the Services
USA: Fed funds rate Russia: CBR refinancing rate
PMI index posted 49.3 in September, dow n from 49.5 in
Eurozone: ECB interest rate India: Repo rate August and below the neutral 50.0 threshold for the
second month running. And in Brazil, the services PMI
China UK: Official bank rate
20 decreased to 48.7 in September from 50.6 in August,
Brazil: Selic rate falling below the 50.0 mark for the first time since
February. By contrast, the PMI for services in India
expanded to 61.0 in September, among the highest
over the past 13 years.
The story for inflation is a bit more subtle. Headline
15 inflation continues to decelerate, although there are
countries w here it increased, notably the United States,
primarily due to increased oil prices. Inflation
expectations among most countries, how ever, remain
stable and w ell anchored at around 2 to 3%.
Core inflation, w hich excludes the most volatile prices
10 such as food and energy, continued its dow nw ard trend
around the globe and is approaching more comfortable
levels. On this point, core inflation in the United States
decreased to 4.1% (annualized) in September (4.3% in
August). According to the September Survey of
Consumer Expectations, median inflation expectations
5 increased slightly to 3.7 and 3.0% at the one- and
three-year horizons, respectively, but decreased
marginally to 2.8% at the five-year horizon. The
eurozone’s inflation w as dow n to 4.3% in September
(5.2% in August), the main driver being food-price
inflation (8.8% in September). Excluding energy and
0 food, inflation w as 4.5%. The latest reading for
Jan Jan Jan Jan Jan Jan Jan Jan Jan producer-price inflation w as –8.7% in August (–6.0% in
2007 2009 2011 2013 2015 2017 2019 2021 2023 July). UK CPI inflation remained at 6.7% in September,
Source: Banco Central do Brasil; Bank of England; Central Bank of Russia; European Central Bank (ECB); New York Fed; Reserve Bank of India; McKinsey’s Global Economics Intelligence analysis
w hile core inflation (excluding the price of energy, food,
alcohol, and tobacco) dropped to 6.1% from 6.2%. And
in China, the consumer prices inflation rate reported 0%
in September (inflated at a rate of 0.1% in August),
w hile the core CPI stabilized at 0.8% for three months
in a row . Producer prices deflated at a rate of –2.5% in
September (−3.0% in August).
The Central Bank of Brazil reduced the Selic rate from
13.25 to 12.75%, w hich committee members believe is
appropriate to keep the necessary contractionary policy
and unanimously anticipate reductions of similar
magnitude in future meetings. In the United Kingdom,
the Bank of England expects inflation to decrease to
around 5% by the end of the year, ow ing to low er price
inflation for energy, food, and core goods (versus 4%
as previously predicted). In light of the unexpected fall
in inflation in August (dow n to 6.7% from 6.8% in July),
the BoE maintained the policy rate at 5.25%. Finally,
new forecasts from the Central Bank of the Russian
Federation and Oxford Economics see the country’s
economy grow ing by 0.5–1.5%, w ith demand potentially
curbed by recent monetary policy tightening.
Equity markets turned in a mixed performance in
September, follow ed by declines across the board in
October. For US equities in September, the returns of
the S&P 500 and the Dow Jones w ere dow n to 11.9%
(14.0% in August) and 1.1% (4.8% in August),
respectively. Meanw hile, the CBOE Volatility Index
averaged 17.5 (13.1 in August), signaling a more
uncertain market w ith the ten-year government bond
yielding 4.9%, the highest in the past ten years. In the
eurozone, equities w aned. In fact, the Eurostoxx 600
index w as 5% below its highest value in 2023.
McKinsey & Company 4
[Advanced economies]: In the advanced
economies, core inflation either decreased or
stayed the same. The United States added fewer
jobs than expected in October, with GDP growth
estimates remaining modest in the United
Kingdom and expected to slow in the eurozone.

McKinsey & Company 5


United States
The labor market added 150,00 net new jobs in October,
while the latest Survey of Consumer Expectations from
the Federal Reserve Bank of New York reports
households’ perceptions for credit conditions have
deteriorated amid high interest rates and a constrained
bond market
The consumer price index remained at 3.7% (annualized) in
September (3.7% in August), while core inflation decreased
to 4.1% (annualized) in September (4.3% in August). An
increase in the gasoline index was a major contributor to the
all-items monthly rise. Although the major energy
component indexes were mixed in September, the energy
index rose by 1.5% over the course of the month. According
to the September Survey of Consumer Expectations,
median inflation expectations increased slightly to 3.7
percent and 3.0 percent at the one- and three-year horizons,
respectively, but decreased marginally to 2.8 percent at the
five-year horizon. Overall, households’ perceptions and
expectations for credit conditions deteriorated slightly.
The unemployment rate remained unchanged at 3.8% (3.5% in
January 2020). Labor market added 150,000 jobs in October.
At the same time, the numbers for September and August
were revised down from 336,000 to roughly 300,000 and from
227,000 to 165,000, respectively. New unemployment claims
remained low and steady, most recently at 198 new claims per
week. And the number of job openings increased to 9.6 million
on the last business day of August.
Also in September, the returns of the S&P 500 and the Dow
Jones were down to 11.9% (14.0% in August) and 1.1% (4.8%
in August), respectively. Meanwhile, the CBOE Volatility Index
averaged 17.5 (13.1 in August), signaling a more uncertain
market with the ten-year gov bond yielding 4.9%, the highest in
the past ten years.
GLOBAL ECONOMICS INTELLIGENCE › UNITED STATES REPORT,
OCTOBER 2023
thirds of the committee indicated that at least one more
increase was needed before the end of the year.
Retail and food-service sales increased to $705 billion, a 0.7%
increase from August’s $700 billion (revised). In August, the
Conference Board Consumer Confidence Index declined to
103.0 from a downwardly revised 108.7. At the same time,
exports were $256.0 billion, $4.1 billion more than in July,
and imports were $314.3 billion, $2.3 billion less than in July.
Overall, the total deficit decreased by 10% to $58.0 billion.
The industrial production index remained unchanged at
103.5 (103.5 in July). The purchasing managers’ indexes
(PMI) in August: for manufacturing it decreased to 50 (47.9
in August), while the services PMI decreased to 50.1 (50.5
in August).
For the housing market, the 30-year fixed-rate mortgage
reached the record figure of 7.6% on October 19, with
approximately 30,000 of households locked in at rates of 4% or
more. Existing home sales fell by 2.0% in September. And the
US National Home Price Index decreased by 1.0% since July,
during which housing starts increased to 1,358K (1,269K in
August).
President Biden visited Israel this month, as tensions rise
in the Middle East. In the House of Representatives,
Republican Mike Johnson was elected Speaker of the
House, closing the 21-day gap without a speaker.
Also in September, the Writers Guild of America’s (WGA)
21-week strike ended after representatives reached a deal
with Alliance of Motion Picture and Television Producers.
Two other unions remain on strike, SAG-AFTRA and the
United Auto Workers, which reached their 12th and fifth
weeks, respectively.
McKinsey & Company 6
 GLOBAL ECONOMICS INTELLIGENCE > UNITED STATES HEATMAP OCTOBER 2023

In September, inflation sat at 3.7%, with core inflation at 4.1%; energy prices reversed
their downward trend

CPI annual change contribution by category Target Inflation Food Energy Goods Services
%
10
9.2
9

7 6.5
6

5 4.5
4
3.7
3
1.9 1.7
2 2.0
1

-1

-2
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep

2019 2020 2021 2022 2023

Source: BLS; McKinsey’s Global Economics Intelligence analysis McKinsey & Company
 GLOBAL ECONOMICS INTELLIGENCE > UNITED STATES HEATMAP OCTOBER 2023

The labor market added 150,000 new jobs in October; the latest NY FED Survey
reports households’ perceptions for credit conditions have deteriorated amid high
interest rates and a constrained bond market
Significant improvement Improving No significant change Worsening Severe decline
The 30-year fixed-rate mortgage reached the record figure of 7.6%
Change Change ▪ The industrial production index remained unchanged in September at 103.5 (103.5 in July). In August, the purchasing managers’ index (PMI) for
Indicator category vs prior vs pre- manufacturing decreased to 50 (47.9 in August), while the services PMI decreased to 50.1 (50.5 in August).
month COVID
▪ Sales in retail and food service increased to $705 billion, a 0.7% increase from $700 billion in August (revised). The Conference Board Consumer
Consumer Confidence Index declined in August to 103.0 from a downwardly revised 108.7. Meanwhile, exports were $256.0 billion, $4.1 billion more than in
July, and imports were $314.3 billion, $2.3 billion less than in July. Overall, the total deficit decreased by 10% to $58 billion.
Business/industry ▪ For the housing market, the 30-year fixed-rate mortgage reached the record figure of 7.6% on October 19, with approximately 30,000 households
locked in at rates of 4% or more. Existing home sales fell by 2.0% in September. And the US National Home Price Index decreased by 1.0% since
July, during which housing starts increased to 1,358K (1,269K in August).
Real estate
Macroeconomic ▪ The unemployment rate remained unchanged at 3.8% (3.5% in January 2020).Total nonfarm payroll employment has added 150,000 net new
jobs in October. New unemployment claims remain low and steady, most recently at 198 new claims per week. And the number of job openings
Trade, external
increased to 9.6 million on the last business day of August.
▪ The consumer price index remained at 3.7% (annualized) in September (3.7% in August), while core inflation decreased to 4.1% (annualized) in
Prices
September (4.3% in August). An increase in the gasoline index was also a major contributor to the all-items monthly rise. Finally, the major energy
component indexes were mixed in September, with the energy index increasing to 1.5% over the course of the month.
Employment
The Federal Reserve is hesitant to raise interest rates due to bond market conditions
Foreign exchange ▪ In September, the returns of the S&P 500 and the Dow Jones were down to 11.9% (14.0% in August) and to 1.1% (4.8% in August). Meanwhile,
the CBOE Volatility Index averaged 17.5 (13.1 in August) signaling a more uncertain market with the ten-year government bond yielding 4.9%, the
Equity highest in the past ten years.
Financial
markets ▪ Ahead of October’s Federal Open Market Committee, President Jerome Powell holds the position that the economy still needs more constraint,
Debt challenging investors who believe that further rate hikes are unnecessary because the government bond market already constrains the economy.

Credit President Biden visits Israel, and Patrick McHenry remains House speaker pro tempore
▪ President Biden visited Israel this month, as tensions rise in Middle East. In the House of Representatives, Republican Patri ck McHenry
Public policy will likely remain House speaker pro tempore, which would allow Congress to function until a permanent speaker is chosen.
Government
and policy ▪ Also in September, the Writers Guild of America’s (WGA) 21-week strike ended after representatives reached a deal with Alliance of
Public-sector health Motion Picture and Television Producers. Currently, two unions remain on strike, SAG-AFTRA and the United Auto Workers, which
reached their 12th and fifth week, respectively.

Source: BLS; US Census, Federal Reserve; NY Federal Reserve Bank, NAREIT; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 8
Eurozone
Global Economics Intelligence › Eurozone report, October 2023

2024 GDP is projected to be 0.7%, according to the 13, primarily due to rising demand ahead of winter and amid
ECB and IMF; headline and core inflation is down to tensions in the Middle East. The price stands at a fifth of its
4.3% and 4.5%, respectively; the European December 2022 high but is still two times the level before the
Commission is expected to triple humanitarian Russian invasion of Ukraine. Brent crude has steadily
assistance for Gaza increased, reaching $91 per barrel in October ($89 per
barrel in September).
Accord to the IMF’s October projections, annual average
real GDP growth is expected to slow from 3.4% in 2022 to PMI numbers for both the services and manufacturing
0.7% in 2023 and then recover to 1.2% in 2024. Compared sectors remain in contraction territory. This is primarily
with the latest projections, the GDP growth outlook has due to declining demand. In addition, the industrial
been revised down by 0.1 percentage points for 2023 and production index showed stagnation in August.
0.2 percentage points for 2024. The more manufacturing-
Following a €19 billion surplus in June, eurozone trade
oriented countries are lagging due to the sector’s weak
edged down to €6 billion in July, mainly due to a decline
momentum on the back of high energy prices (for example,
in exports compared with previous figures, and then
Germany is expected to grow at –0.5% in 2023). In
slightly increased in August to €7 billion.
addition, the more service-oriented economies are starting
to slow down or contract. European equities have waned in October. The
Eurostoxx 600 index is 5% below its highest value in
Eurozone inflation was down to 4.3% in September
2023. In October, the euro was slightly down against the
(5.2% in August), the main driver being food-price
US dollar, hitting $1.05 per euro. The Italian–German
inflation (8.8% in September). Excluding energy and
ten-year bond-yield spread stood at 2.1%; yields
food, inflation was 4.5%. The latest reading for producer-
remained at 4.8 and 2.7%, respectively.
price inflation was –8.7% in August (–6.0% in July).
The European Commission is expected to triple
On October 26, the European Central Bank decided to humanitarian assistance for Gaza to more than €75
leave interest rates unchanged, putting an end to the million. And the European Union is investigating Elon
streak of ten consecutive rate hikes. The economy Musk's X over the possible spread of terrorist and violent
remains relatively weak. However, according to a content and hate speech after Hamas' attack on Israel.
statement from the ECB, “As inflation falls further,
household real incomes recover and the demand for
euro area exports picks up, the economy should
strengthen over the coming years.” Eurocoin, a leading
indicator, remained in negative territory at–0.18 in
September (–0.36 in August). The natural gas price (Dutch
TTF futures) rose sharply in November before plunging in
December and falling to €28 per megawatt hour by the end
of July. However, prices have increased to €54 on October

McKinsey & Company 9

Source: Banca d’Italia; ECB; European Commission; Eurostat; Haver Analytics; McKinsey’s Global Economics Intelligence analysis McKinsey
Photo &
byCompany 9 Unsplash
Ilnur Kalimullin on
 Global Economics Intelligence › Eurozone report, October 2023

IMF’s September projections for 2023 and 2024 growth were downgraded; leading indicators
improved but remain in negative territory

Eurozone real GDP forecast from main institutions, 2022–25 Eurocoin index Eurocoin index
Year-on-year, constant prices (% change) Index (monthly, % change) GDP q-on-q change

IMF World Econ Outlook (April 2023) ECB Staff Projections (September 2023)
ECB Staff Projections (June 2023) IMF World Econ Outlook (October 2023) 13.0

3.4 3.4 3.4 3.4

2.0
1.5
1.0
0.5
a

1.8 –0.5
1.6 –1.0
1.5 1.5
1.4
–1.5
1.2
1.0 –2.0
0.9
0.8 –2.5
0.7 0.7
–3.0
–3.5

–11.5
2022 2023 2024 2025 2007 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Source: Banca d’Italia; European Commission; Eurostat; Haver Analytics; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 10
 Global Economics Intelligence › Eurozone heatmap, October 2023

Headline and core inflation were down to 4.3% and 4.5%, respectively; European Commission
will immediately triple humanitarian assistance for Gaza
Significant improvement Improving No significant change Worsening Severe decline

Change Change Headline and core inflation were down to 4.3% and 4.5%, respectively
Indicator category vs prior vs pre-
month COVID ▪ Retail sales fell (–1.2% m-o-m) in August and by –2.1% compared with last year’s mark.
▪ The consumer confidence indicator (European Commission) was recovering from last year historic low, although consumer confidence
Consumer deteriorated in September (–17.8). The business confidence index is still in negative territory.
▪ The manufacturing PMI Index decreased slightly to 43.4 in September (from 43.5 in August). The situation in the services sect or remains
Business/industry similar, with a continued contraction, though at a slower pace.
▪ The industrial production index stagnated in August.
Real estate ▪ Following a €19 billion surplus in June, Eurozone trade edged down to €6 billion in July, mainly due to a decline in exports compared with
Macroeconomic previous figures. In August, it increased to €7 billion.
External trade ▪ House prices were unchanged in Q2 2023 while new permits increased.
▪ Eurozone inflation decreased to 4.3% in September (5.2% in August), driven primarily by food-price inflation (8.8% in September); excluding
Prices energy and food, inflation was still high at 4.5%. The latest reading for producer-price inflation was –8.7% in August (–6.0% July).
▪ The unemployment rate edged down slightly to 6.4% in August, compared with 6.5% in July. Meanwhile, youth unemployment remained
Labor market
broadly stable at 13.8%.

Foreign exchange
European equities have waned; Italian and German ten-year bond yields stable; the euro slightly down against the dollar
Equity ▪ European equities have waned in October; the Eurostoxx 600 index is 5% below its highest value in 2023.
Financial
▪ In October, the euro was slightly down against the US dollar, hitting $1.05 per euro.
markets
Debt ▪ The Italian–German ten-year bond-yield spread stood at 2.1%; yields remained at 4.8% and at 2.7%, respectively.
▪ Loans to businesses and households increased by 0.1% and 0.2% m-o-m and by 0.8% and 1.9 % over 2022, respectively.
Credit
The European Commission is expected to triple humanitarian assistance for Gaza; EU opens investigation into X
Public policy ▪ The European Commission will triple humanitarian assistance for Gaza to more than €75 million.
Government
and policy ▪ The EU is investigating Elon Musk's X over the possible spread of terrorist and violent content and hate speech after Hamas' attack on Israel.
Public-sector health

McKinsey & Company 11

Source: European Commission; Eurostat; Haver Analytics; United Nations; McKinsey’s Global Economics Intelligence analysis
United Kingdom
Inflation holds steady at 6.7% in September, not far
from Bank of England expectations; the latest GDP
projections indicate modest growth for 2023 and 2024;
quarterly GDP rises by 0.2% in Q2 2023
According to the IMF’s October World Economic Outlook,
growth in the United Kingdom is projected to decline from
4.1% in 2022 to 0.5% in 2023, with a 0.1 percentage point
upward revision. This decline reflects tighter monetary
policies to curb still-high inflation as well as lingering
impacts of the terms-of-trade shock from high energy
prices. According to the OECD, the country’s GDP is
expected to grow by a modest 0.3% in 2023 and 0.8% in
2024. Government consumption and investment will likely
continue to support the economy, followed by a gradual
strengthening of private expenditures due to falling
wholesale gas prices and improved global conditions.
Headline inflation is projected to slow on the back of
declining energy prices and approach the 2% target by the
end of 2024.
UK CPI inflation remained at 6.7% in September, while core
inflation (excluding the price of energy, food, alcohol, and
tobacco) dropped to 6.1% from 6.2%. Slowing inflation on
food items such as milk, cheese, and eggs was offset by
rising fuel prices. The rapid pace of price rises in the United
Kingdom has been more persistent than in other large
economies, with inflation running at the highest level in the
G7. The Bank of England expects inflation to decrease to
around 5% by the end of the year, owing to lower price
inflation for energy, food, and core goods (versus 4% as
previously predicted). In light of the unexpected fall in inflation
in August (down to 6.7% from 6.8% in July), the BoE
maintained the policy rate at 5.25%.
On manufacturing, September saw cutbacks for output, new
orders, and employment amid weaker intakes of new work
from both domestic and overseas clients. Manufacturers
reported a weakening economic backdrop, with demand
Source: Bank of England; IMF; OECD; Office for Budget Responsibility; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis
Global Economics Intelligence › United Kingdom report, October 2023
dampened by rising interest rates, the cost-of-living crisis,
export losses, and concerns about the market outlook. The
seasonally adjusted Manufacturing PMI index posted 44.3 in
September, up slightly from August's 39-month low of 43.0.
Meanwhile, the Services PMI index posted 49.3 in
September, down from 49.5 in August and below the neutral
50.0 threshold for the second month running. Finally, the UK
construction PMI registered 45.0 in September, down
sharply from 50.8 in August and below the neutral 50.0
value for the first time since June.
Growth in average total pay was 8.1% in June–August 2023,
and real total pay rose by 1.3% year-over-year. The
unemployment rate for June–August 2023 increased by 0.2
percentage points on the quarter to 4.2%. The economic
inactivity rate increased by 0.1 percentage points on the
quarter to 20.9%. And the estimated number of vacancies in
July–September 2023 was 988,000, a decrease of 43,000
from June–August 2023, with vacancies falling in 14 of 18
industry sectors.
Britain's Labour party won two by-elections over the ruling
Conservatives, increasing pressure on Rishi Sunak's Tory
party as the next general election approaches. The governing
party, which has been in power since 2010, has seen an
increasing loss of support since a 2019 election won in a
landslide by then-leader Boris Johnson.
Yields on 30-year British government bonds rose to their
highest in more than 25 years on October 20, part of a
broader global move as tensions in the Middle East raise
concerns about higher oil prices and inflation. Unlike a year
ago—when British government bond yields rose more
sharply in other countries, due to market disquiet about the
fiscal plans of then–Prime Minister Liz Truss—the latest
increase is part of a global move.
McKinsey & Company 12
 Global Economics Intelligence › United Kingdom report, October 2023

UK GDP grew by 0.2% in Q2 2023; the CPI remains at 6.7% in September, with real
wages overtaking inflation; the Bank of England keeps the policy rate at 5.25%

UK real GDP forecast from main institutions, 2023–25 12-month inflation; Bank of England interest rate
% change (year-over-year); constant prices % CPI inflation
Core inflation1
Office for Budget Responsibility Economic and Fiscal Outlook (March 2023)
BoE interest rate
Bank of England Monetary Policy Report (August 2023) 12
OECD (September 2023)
11
IMF World Economic Outlook (October 2023)
10
2.5
9

2.0 8
1.8 7

4
0.8
0.6 3
0.5 0.5
0.4
0.3 0.3 2

0
-0.2 Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23
2023 2024 2025

1. The specific measure excluding energy, food, alcohol, and tobacco is the one typically referred to as “core” by the ONS.
McKinsey & Company 13
Source: Bank of England; IMF; OECD; Office for Budget Responsibility; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis
 Global Economics Intelligence › United Kingdom heatmap, October 2023

Inflation remains steady, with food prices rising slowly and fuel prices rising sharply;
manufacturing-and-services-sector sentiment and consumer confidence decline
Significant improvement Improving No significant change Worsening Severe decline
Change Change Inflation remains steady in September; consumer confidence declines; industrial production weakens
Indicator category vs prior vs pre- ▪ Retail sales volumes are estimated to have fallen by 0.9% in September 2023, following a rise of 0.4% in August 2023.
month COVID
▪ GfK’s Consumer Confidence Index decreased by nine points in September, to –30 (from –21 in August). The cost-of-living crisis, a slowing
jobs market, and the uncertainties posed by the conflict in the Middle East are contributing to a growing unease in consumer sentiment.
Consumer ▪ Monthly production output is estimated to have fallen by 0.7% in August 2023; this follows a fall of 1.1% in July 2023. A dec line in
manufacturing was the main contributor, along with decreases in electricity and gas and water supply and sewerage.
Business/industry
▪ The UK manufacturing PMI increased slightly in August, reaching 44.3, up from a 39-month low of 43 in August. However, the measure has
remained below the neutral 50.0 mark for 14 successive months. The services PMI declined to 49.3 in September from 49.5 in August,
Real estate
remaining below the 50.0 neutral value, which is the lowest reading since January.
Macroeconomic
▪ Monthly construction output in terms of volume is estimated to have decreased by 0.5% in August 2023. The UK construction PMI registered
External trade
45.0 in September, down sharply from 50.8 in August and below the neutral 50.0 value for the first time since June. The total trade in goods
and services deficit narrowed by £3.5 billion to £10.4 billion in the three months to August 2023, as imports fell by more than exports.
Prices
▪ The annual CPI inflation rate remained at 6.7% in September. Core inflation (excluding food, energy, alcohol, and tobacco) declined to 6.1%
from 6.2% in August. Producer input prices fell by 2.6% in the year to September 2023, down from a fall of 2% in the year to August; producer
Employment
output (factory gate) prices fell by 0.1% in the year to September 2023, up from a fall of 0.5% in the year to August 2023.
Foreign exchange ▪ The unemployment rate for June–August 2023 increased by 0.2 p.p. on the quarter to 4.2%. The economic inactivity rate increased by 0.1
p.p. on the quarter, to 20.9% in June–August 2023.
Equity UK equities improve; GBP weakens versus USD, the 10-year gilt declines from highs seen during market turmoil in late 2022
Financial
markets ▪ The FTSE 100 lost around 3.6% of its value during the past month and is now some 7.6% below the peak reached in February 2023. As of
Debt October 22, the pound has weakened to $1.22, having almost reached parity in late September 2022.
▪ The daily yield of the UK 10-year gilt has increased to 4.67%, as of October 18, above the historic highs of more than 4.6% seen in mid-
Credit October 2022, and well more than mid-2022 rates of around 2%.
▪ UK government debt dropped slightly to 100.5% of GDP in Q1 2023, while the deficit decreased to 3.8% of GDP (from 6.8% in Q4 2022).
Public policy
Government
and policy Labour party wins over Tories in by-elections; UK 30-year borrowing costs rise to highest since 1998
Public-sector health ▪ Britain's opposition Labour party won two by-elections over the ruling Conservatives, increasing pressure on Rishi Sunak's party as the next
general election approaches.
▪ Yields on 30-year British government bonds rose to their highest in more than 25 years on Friday, part of a broader global move as tensions
in the Middle East raise concerns about higher oil prices and inflation.

McKinsey & Company 14

Source: Bank of England; Office for National Statistics; McKinsey’s Global Economics Intelligence analysis
[Emerging economies]: GDP growth slows in
China and remains stable in Russia. Meanwhile,
industrial production and manufacturing are up
in India, and inflation continues to rise in Brazil.

McKinsey & Company 15

 Global Economics Intelligence › China report, October 2023

China
In the third quarter of 2023, GDP reaches a year- average housing price only moderately increasing by
over-year growth rate of 4.9%, exceeding consensus 1.0% (compared with 14.9% in Q2).
estimates (the median projection was 4.3%). The
New social financing reached RMB 7.8 trillion in Q3,
pace of expansion in fixed-asset investments
marking a 15% year-over-year increase (compared with
decelerates compared with Q2. Both housing sales
a –22% decrease in Q2). The surge in credit was
and trade continue to exhibit contractions when
primarily driven by a 105% increase in new government
compared with the previous year.
bond financing (compared with the same period in 2022).
China's GDP growth in Q3 slowed to 4.9% year-over- As of the end of Q3 2023, total social financing
year (compared with 6.3% in Q2), reflecting the fading amounted to RMB 372.5 trillion, reflecting y-o-y growth
influence of the base effect. During this time, GDP of 9.3%.
expanded by 5.2%. Consumption was the largest driver,
Meanwhile, the overall urban unemployment rate
making up 95% of GDP growth, followed by investment
decreased to 5.0%, down from 5.2% in Q2, which
(22%) and trade (–17%). By sector, GDP growth in
signifies a recovery to pre-COVID-19 employment levels.
agriculture accelerated to 4.2%, up from 3.7% during Q2.
And GDP growth in the industrial and services sectors Cross-border trade continued to decline in Q3, with a
slowed to 4.6% and 5.2%, down from 5.2% and 7.4% in year-over-year drop of –10.2% (–6.0% in Q2). Exports
Q2, respectively. dropped by –10.8% in Q3 (compared with a –5.4%
decline in Q2), and imports decreased by –9.4%
Growth in fixed-asset investment slowed to 1.9% in Q3,
(–7.0% in Q2).
down from 3.1% in Q2. By sector, manufacturing
investment increased to 6.5% year-over-year, up from According to the most recent market consensus, the
5.5% in Q2. Infrastructure investment also increased, median projection for 2023 GDP growth has been
though at a slower pace, reaching 4.5% (6.4% in Q2). revised to 5.0%. In addition, the consensus anticipates
And real estate investment continued to contract, GDP growth of a 4.5% in 2024.
shrinking by
–9.9% (–7.7% in Q2).
The housing market saw a continued downturn in Q3.
Revenue from residential property sales dropped by –
22.8% (compared with –8.3% in Q2), with floor space
sold declining by –23.6% in Q3 (–20.2% in Q2), and the

McKinsey & Company 16

Source: CEIC; McKinsey’s Global Economics Intelligence analysis
 Global Economics Intelligence › China report, October 2023

In September, the official manufacturing PMI showed a rebound, and the services
PMI inched up, remaining within the expansion zone; stock indexes fell

Purchasing managers indexes (PMI) Stock market indexes

Index, monthly Index, monthly
CFLP manufacturing CFLP services Shanghai SE (LHS)
Caixin manufacturing Caixin services Shenzhen SE (RHS)
60 5,000 20,000

55 4,500
16,000

50 50 4,000

12,000
45 3,500

3,000
40 8,000

2,500
35
4,000
2,000
30
1,500 0
2018 2019 2020 2021 2022 2023 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: CEIC; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 17
 Global Economics Intelligence › China heatmap, October 2023

Retail sales growth accelerated in September; the contraction in trade decreased;

inflation remained low; the RMB stabilized
Significant improvement Improving No significant change Worsening Severe decline

Indicator category Change vs Change vs

prior month pre-COVID
Retail sales growth accelerated; both the manufacturing and services PMIs rose; trade reported a smaller
Consumer decline; CPI and PPI remained low
• Retail sales grew faster at 5.5% y-o-y in September (4.6% in August).
Business, industry • The official manufacturing PMI rose to 50.2 in September (49.7 in August), signaling a rebound into the expansion zone, and
the subindexes showed improved production (52.7 in September versus 51.9 in August) and demand in the industrial sector
Real estate (50.5 in September versus 50.2 in August). The official services PMI inched up to 50.9 in September, a slight increase from
Macroeconomic the 50.5 recorded in August.
External sector, trade
• The contraction in cross-border trade narrowed. Exports growth reported a decline of –6.2% in September (–8.8% in
August), and imports were down –6.2% (–7.3% in August).
Prices
• Consumer prices inflation rate reported 0% in September (inflated at a rate of 0.1% in August), while the core CPI stabilized at 0.8%
for three months in a row. Producer prices deflated less at a rate of –2.5% in September (−3.0% in August).
Employment
The RMB stabilized against the US dollar; stock indexes edged down; money supply stabilized
Foreign exchange
• The RMB stabilized against the dollar compared with the end of September, trading at RMB 7.3062 = USD 1 (as of October 24).
Equity
• As of October 24, the Shanghai stock index lost 5.5% in value, and the Shenzhen stock index lost 6.8% (compared with the end
Financial of September).
markets
Debt • New social financing measured RMB 4.1 trillion in September (up from 3.1 trillion in August) —representing a y-o-y increase of
16.4% (compared with 26.5% in August).
Credit • M2 expanded at a pace of 10.3% y-o-y in September (10.6% in August).

Public policy Consumption during the National Day holiday saw remarkable growth compared with the previous year, but a
Government moderate increase compared with pre-COVID-19 levels
and policy
Public-sector health • According to the Ministry of Culture and Tourism, domestic passenger trips during the eight-day holiday increased by 71%
compared with the previous year, and the tourism sector generated y-o-y growth in revenue of 130%.
• However, compared with the same period in 2019, the growth in domestic passenger trips and tourism revenue was
moderate at 4% and 2%, respectively.

Source: Bloomberg; CEIC; McKinsey’s Global Economics Intelligence analysis McKinsey & Company 18
 Global Economics Intelligence › India report October 2023

India
Despite a global backdrop of increased crude oil investment (FDI) moderated to US $26.9 billion during
prices and weak manufacturing activity, India focuses April–August 2023 from US $34.2 billion, compared
on the growth of capital-heavy industries; INR with the previous year. Approximately two-thirds of the
stabilizes and exhibits lower volatility with moderate FDI equity flows were channeled toward manufacturing,
inflation financial and business services, and electricity and
other energy sectors. Foreign portfolio investors (FPIs)
In the second quarter 1 of 2023, India’s economic
emerged as net sellers in September 2023 after
activity index nowcasts GDP growth of 6.8%.
remaining buyers for the past six months, with net
Industrial production has been relatively positive. The year- outflows reaching US $2.0 billion.
over-year growth was 8.0% in August, with all sectors
In September, the exchange rate was similar for both
witnessing an increase from 2022 numbers. Manufacturing
the euro and the dollar, declining marginally.
further expanded by 1.6% (0.1% in July), mining remained
Meanwhile, the stock market offered a negative
stable, and electricity saw an increase of 8.1% (8.0% in
narrative, with both the Sensex and Nifty indexes
July).
marking losses of approximately 3%.
The Purchasing Managers’ Index (PMI) for the
Finally, the central bank opted to maintain interest rates
manufacturing sector remained in contraction for 13
at a steady 6.5%, underlining a cautious approach.
months in a row, standing at 57.5 (58.6 in August),
whereas the PMI for services expanded to 61.0 in
September, among the highest over the past 13 years.
According to the Retailers Association of India (RAI),
the sales growth for September was 9% year-over-
year, which suggests that, despite economic
uncertainties, consumer sentiment remains optimistic.
Headline inflation further moderated to 5.0% in
September (from 6.8% in August). Food inflation stood
at 6.3% (versus 9.2% in August), contributing to a
decline in headline inflation (driven by a sharp decline
in vegetable prices), fuel and light inflation saw a
change of –0.1%, against inflation of 4.3% in August.
In the financial sector, market and cost conditions have
increased the demand for corporate bonds, with a 40%
increase during the same time period, as compared
with last year (to date). Gross inward foreign direct

1. India follow s the fiscal calendar. McKinsey & Company 19

Source: Havers; IHS Markit; Ministry of Commerce and Industry; Ministry of Statistics and Programme Implementation (MOSPI); Reserve Bank of India
 Global Economics Intelligence › India report October 2023

In July, industrial production grew by 8.0%, while equity indices were in contraction
Index Y-o-Y % change NSE BSE
Index of Industrial Production (IIP) BSE Sensex1 and NSE Nifty2 equity markets index
Index level (left axis) and % change (y-o-y) Index level, (monthly)

150 135 76.500

145
140 25
135 68.000
20
130
125 15
59.500
120 10
115 5
110 51.000
0
105
100 -5
95 42.500
-10
90
-15
85 34.000
80 -20
75 -25
70 -30 25.500
65
-35
60
55 -40 17.000
50 -45
45 8.500
-50
40
35 -55
30 -60 0
07 08 09 10 11 12 13 14 15 16 17 18 19 20 2021 2022 2006 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 2023

1. BSE: The Bombay Stock Exchange (Sensex) is a value-w eighted index comprising the 30 largest and most actively traded stocks.
2. NSE: The National Stock Exchange of India (Nifty) consists of 50 major stocks w eighted by market capitalization.

SOURCE: Economics Times; Ministry of Statistics and Programme Implementation (MOSPI); McKinsey’s Global Economics Intelligence analysis McKinsey & Company 20
 Global Economics Intelligence › India heatmap, October 2023

GDP grew by 7.8% in Q1 2023; manufacturing PMIs suggest potential economic

deacceleration; financial markets remained stable; imports decline further
Significant improvement Improving No significant change Worsening Severe decline

Indicator category Change vs Change vs

prior month pre-COVID
levels
industrial production slowed compared to June, PMI for manufacturing slowed down, imports contracted
Consumer
▪ Retail sales reported 9% year-on-year growth in September.
Business, industry ▪ Industrial production accelerated from 5.7% year-on-year growth in July to 8.0% in August. This growth was distributed across
manufacturing and electricity sectors.
Real estate
▪ PMI for manufacturing sector remained in contractionary zone for 13 months in a row, standing at 57.5, and services increased to 61.0, the
highest in more than a decade.
Macroeconomic
External sector, trade ▪ The merchandise trade deficit in September declined by US $2.3 billion, with a sharp decline in imports.
▪ In September, the official headline rate of inflation moderated to 5.0% from 6.8% in August, with food prices improving.
Prices ▪ The all-India unemployment rate (UR) relaxed to 7.1% in September 2023, with declining UR in urban areas (8.9%) and rural areas (6.2%).

Employment

Financial markets in India declined; exchange rate stabilized

Foreign exchange
▪ The rupee stabilized, showing low volatility when compared with the previous month, during which it heavily depreciated against the euro.
Equity markets ▪ Both the Sensex and Nifty equity indexes fell into contraction by around 3%.
Financial
▪ Foreign portfolio investors (FPIs) emerged as net sellers in September 2023 after consistently remaining buyers for past six months, with
markets
Debt net outflows reaching US $2.0 billion.

Credit The central bank maintained the status quo on interest rates; the fiscal deficit worsened
▪ The central bank kept the interest rates at 6.5%, unchanged from the previous month.
Public policy ▪ The fiscal deficit increased to 36% of the budget estimates, compared with last month’s standing at 34%.
Government
and policy
Public-sector health

SOURCE: McKinsey’s Global Economics Intelligence analysis McKinsey & Company 21

 Global Economics Intelligence › Russia report, October 2023

Russia
The country’s economic performance was stable in by the deterioration in the ruble’s exchange rate, which
August; GDP forecasts assume a soft landing has lost about 30% of its value to the US dollar since
despite tighter monetary policy amid inflation the start of the year (approximately ₽95.7 per US dollar
as of October 20). In response to rising inflationary
In recent months, the growth of industrial production
pressure and the ruble’s slide, the Bank of Russia
has been moderate, with volumes relatively stable and
raised its key policy rate to 13% in September, with
reaching annual growth of 4–6% since May.
expectations for inflation in the range of 5.0–5.6% over
Manufacturing activity was maintained largely because
the next year.
of military orders. Similarly, retail trade was tepid, with
volumes declining by 2% since April. The positive With global oil prices more than $90 per barrel, the
annual dynamics of around 10% benefitted from low recent foreign trade and fiscal data show signs of
base effect. recovery in terms of export proceeds and budget
revenues. Still, the federal budget deficit is expected to
New forecasts from the Central Bank of the Russian
exceed 2% of GDP in 2023. Along with the pressure on
Federation and Oxford Economics see the country’s
exporters to sell foreign currency and the tighter
economy growing by 0.5–1.5%, with demand
monetary conditions, higher oil exports have relieved
potentially curbed by recent monetary policy tightening.
the weakening pressure on the ruble.
That said, some impact is expected from looser fiscal
policy and maintained credit subsidies, the combination The recently approved budget framework assumes
of which could help the economy avoid a hard landing. significant increases in both revenues and spending.
Total federal budget spending in 2024–25 would be
Russian inflation has accelerated in recent months,
about 20% higher than the previous budget framework,
reaching 6% year-over-year in September. This was
with more than double the spending on defense. In fact,
largely driven by domestic demand supported by
the share of defense spending in the federal budget
government spending. Domestic supply has not
would rise to an historical high of 29%. In addition, the
managed to keep up with demand due to capacity
new framework anticipates increased revenues from oil
constraints, with labor shortages emerging as a
and gas as well as one-off items such as a new export
particular challenge. Due to the scarcity of workers,
tax. This sets the stage for further fiscal loosening, as
rising wages have added to inflationary pressures.
revenue presumptions seem optimistic.
Another recent concern for the administration has been
the rise in retail fuel prices. In response, the
government imposed temporary bans on gasoline and
diesel fuel exports. Inflation has also been exacerbated
Source: BOFIT; IHS Markit; Oxford Economics McKinsey & Company 22
 Global Economics Intelligence › Russia report, October 2023

Foreign trade surplus declined in 2023 from record high levels;

inflation exceeded target in July; real wages continue fast growth
Foreign trade of goods Inflation; the Central Bank interest rate and real wages
USD billion % change (y-o-y), %

55 25

50
20
45

40 15
35
10
30

25 5
20

15 0

10
-5
5

0 -10
Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24 Jan 2018 Jan 19 Jan 20 Jan 21 Jan 22 Jan 23 Jan 24

Exports of goods Inflation CBR interest rate Core inflation Real wages
Imports of goods
Trade balance

Source: Central Bank of the Russian Federation; Federal Statistics Service; Haver analytics McKinsey & Company 23
 Global Economics Intelligence › Russia report, October 2023

Domestic recovery stalled over summer; credit expansion continue

amid returning inflation pressures; fiscal situation improves on
higher oil prices
Significant improvement Improving No significant change Worsening Severe decline

Indicator category Change vs Change vs

prior month pre-COVID
Short-term activity indicators stalled in June–August amid tight labor market, rising inflation and still subdued foreign trade
levels ▪ Retail sales declined cumulatively by 2% in May–August. Annual growth picked up to 10.2%, benefiting from the low base of the first few
months of the invasion of Ukraine.
Consumer
▪ Industrial production remains stagnant in June–August, keeping positive annual dynamics of 4.9% (5.7% on average in Q2). In
September, manufacturing PMI increased to 54.5 (from 52.7).
Industry
▪ Since January, goods exports oscillated from $32 billion to $39 billion monthly, roughly –30% y-o-y. Meanwhile, in recent months
imports plateaued in the range of $25 billion to $27 billion monthly. These trends caused the goods trade surplus to expand to $11.3
Real estate
Macro- billion in August, up from $6.5 billion in July.
economic ▪ Headline inflation reached 6% in September (from 5.2% y-o-y in August). Core inflation increased to 4.6% from 4.0%. In September, the
External sector, trade
median value of expected consumer inflation stabilized at more than the two-digit level, exceeding 11%.
▪ The labor market remains tight, with the unemployment rate close to historical lows of 3.1% in August and high real wage growth
Prices
(9.2 y-o-y in July). Next January's 18.5% minimum wage hike will likely give an additional boost to wage growth.

Labor market Continued weakness of the ruble and credit expansion

▪ The ruble has recently stabilized, after losing around 15% of its value since the beginning of summer, trading at ₽95.7 per $1.00 (as of
Foreign exchange October 20).
▪ Government debt yields continued their gradual growth, reaching 12.0% on October 13.
Equities ▪ Household lending growth increased in August to 20.6 (from 18.1% y-o-y in July). Corporate lending growth decreased slightly to 28.9%
Financial
markets y-o-y. The tightening of monetary policy could lead to slowdown in the credit market, but the proliferation of state subsidies would likely
Debt maintain the demand.
Russian fiscal stance benefits from higher oil prices
Credit
▪ At the July OPEC+ meeting, Russia promised to cut its oil exports by 500,000 barrels per day in August. At the August meeting, the
country said that the export cut would be tapered to 300,000 barrels per day in September. The latest data show an increase in
Public policy seaborne oil exports in late August and early September, suggesting that Russia's oil exports may have bottomed out.
Government
and policy ▪ With global oil prices more than $90 per barrel, the recent foreign trade and fiscal data show signs of recovery in export
Public-sector health proceeds and federal budget revenues, which in September YTD were at par with the same period of 2022.

Source: BOFIT; Haver Analytics; Oxford Economics; The Economist Intelligence Unit McKinsey & Company 24

Brazil
Central Bank of Brazil lowers the Selic rate by 0.5
percentage points while inflation continues to increase
The Monetary Policy Committee (Copom) of the Central
Bank of Brazil reduced the Selic rate from 13.25 to 12.75%.
Committee members believe this pace is appropriate to
keep the necessary contractionary policy and unanimously
anticipate reductions of similar magnitude in future
meetings. In addition, the Committee emphasized that the
total magnitude of the easing cycle will depend on inflation
dynamics.
On this point, inflation continued to rise for the third
consecutive month, coming in at 5.19% (4.61% in August),
the highest over the past seven months. Consumer prices
accelerated considerably for transportation, largely due to
high fuel costs. Meanwhile, inflation for food continued to
slow, given strong agricultural harvests.
Consumer confidence increased slightly to 97.0 in
September, from 96.8 in August—the highest reading since
February 2014. The index moved closer to, but remained
below, the 100-point threshold, indicating milder pessimism
among Brazilian consumers. Overall, the index has
increased for the fifth consecutive month, underscoring the
resilience of the Brazilian economy to restrictive interest
rates from the Central Bank and adding to optimism amid the
ongoing loosening cycle.
Brazil’s purchasing managers’ index for manufacturing
decreased from 50.1 in August to 49.0 in September.
Despite the decrease, the manufacturing PMI is higher than
the year’s average of 47.6. Brazilian manufacturers
experienced a setback in September as production levels
and new order intakes returned to contraction, following
Source: Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE)
Global Economics Intelligence › Brazil report, October 2023
slight growth in the previous month. However, the downturn
in the manufacturing sector’s performance was marginal and
much softer than the average from the first half of the year.
The services PMI decreased to 48.7 in September from 50.6
in August, falling below the 50.0 mark for the first time since
February. Service providers in Brazil signaled challenging
operating conditions in September, with reduced demand
triggering the first decline in new business in seven months.
Some companies also reduced employment and output for
the first time since February. Input costs rose by
approximately 3%, a similar rate to that seen in August. And
the composite PMI decreased to 49.0 in September (50.6 in
August), showing a slight contraction in the output of the
Brazilian private sector, after growth regained momentum in
August.
In September, the balance of trade recorded a surplus of US
$8.9 billion, with exports totaling US $28.4 billion (US $30.9
billion in August) and imports reaching US $19.5 billion (US
$21.4 billion in August). Exports to Argentina and the
European Union decreased while exports to Canada and
Japan increased.
Regarding financial markets, the monthly average exchange
rate was at BRL 4.94 per US dollar in September, compared
with 4.90 in August. The October Bovespa equities index
declined slightly, losing 0.1% in value. Finally, the three-
month moving average unemployment rate fell to 7.8% in
August (7.9% in July), the lowest since 2015.
McKinsey & Company 25
 Global Economics Intelligence › Brazil report, October 2023

In September, inflation increased while the Brazilian real lost

ground; the equity market’s performance slightly decreased
Consumer price index 1; exchange rate CPI Bovespa index
% change y-o-y, monthly; BRL per USD Exchange rate
Indexed to January 2007 = 100
15.0 300
265
280
260
10.0
240
220
200
5.0
180
160
0 140
120
100
–5.0 80 2
200708 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 200708 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23

1 National Consumer Price Index (extended IPCA), 1993 = 100, not seasonally adjusted; % change in CPI in local currency (period average) over previous year. The Central Bank’s target inflation rate for 2023 is 3.25%
with a margin of error of 1.5 percentage points.
2 Data through October 16, 2023.

Source: Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE); McKinsey’s Global Economics Intelligence analysis McKinsey & Company 26
 Global Economics Intelligence › Brazil heatmap, October 2023

A contraction in the output of the Brazilian private sector decreased

manufacturing and services PMIs
Significant improvement Improving No significant change Worsening Severe decline

Change vs
Change vs pre-COVID
Indicator category prior month levels1 September’s inflation kept its increasing trend while unemployment kept decreasing
• Consumer confidence increased to 97.0 in September, from 96.8 in August—the highest reading since February 2014 and 7.3%
Consumer
above pre-COVID-19 levels. Business confidence slightly decreased to 91.0 in September compared with 91.4 in August, 9.8%
below pre-COVID-19 levels.
Business, industry
• The purchasing managers’ index (PMI) for manufacturing decreased to 49.0 in September (50.1 in August), which is still lower
than pre COVID-19 levels (51.0). The services PMI decreased to 48.7 in September (50.6 in August)—lower than pre COVID-19
Real estate levels (52.2).
Macroeconomic
• In September, Brazil recorded a balance-of-trade surplus of US $8.9 billion, with exports totaling US $28.4 billion (US $30.9
Trade, external billion in August) and imports reaching US $19.5 billion (US $21.4 billion in August). Exports to Argentina and the EU decreased
while exports to Canada and Japan increased.
Prices • Inflation reached 5.19% (4.61% in August), increasing for the third time since June 2022. CPI is 1.0 percentage point above pre-
COVID-19 levels. Prices increased for transportation due to high fuel costs, while inflation slowed for food given strong
Labor market agricultural harvests.
• The three-month moving average unemployment rate decreased slightly to 7.8% in August (7.9% in July), which is both the
Foreign exchange lowest since 2015 and approximately 30% lower than the pre-COVID-19 rate.
The Brazilian real weakened against the US dollar, and the Bovespa index continued to decrease
Equity • In September, the real lost strength against the US dollar. The monthly average exchange rate was BRL 4.94 per US dollar (4.90
Financial
markets in August). On October 17, the exchange rate was 5.04 BRL per US dollar.
Debt • The Bovespa equities index lost 0.1% of its value for the month (up to October 10); it lost 1.9% in value up to September 11.
Drought in the Amazon is disrupting transport and isolating communities while deforestation is dropping
Credit
• On October 16, the Amazon River fell to its lowest level in more than a century. The drought has left many remote villages
(around 500k people) without food and other supplies. Brazil’s Science Ministry reported that the drought is expected to last until
Public policy December. Meanwhile, several NGOs have delivered food and supplies to vulnerable villages.
Government
and policy • Deforestation dropped by approximately 66% in August, compared with last year’s same period under former President
Public-sector health Bolsonaro. During the first half of the year, deforestation dropped by approximately 34% and continued to decrease in the
following months.
1 January 2020 is used as reference for pre-COVID-19. McKinsey & Company 27
Source: Banco Central do Brasil; Fundação Getulio Vargas; Haver Analytics; Instituto Brasilièro de Geografia e Estatística (IBGE)